The worldwide diamond sector faces a pivotal moment as it grapples with the impending G7 ban on Russian diamonds. In a market characterized by subdued demand, both consumers and producers are navigating intricate supply chains.
The industry has already witnessed a significant downturn in the direct sales of Russian gems due to U.S. sanctions targeting Russia’s state diamond miner, Alrosa. Furthermore, the G7 is currently finalizing an additional ban on indirect sales within its member countries, set to take effect by the end of October.
Even before the ban comes into full force, Western consumers have displayed a growing reluctance toward gemstones sourced from Russia, a nation that stands as the world’s largest producer of rough diamonds by volume, commanding a substantial 30% share of the market. In response, notable players like Tiffany, a part of the French luxury group LVMH, announced its cessation of rough diamond sourcing from Russia. Luxury labels within the Swiss-based Richemont group, including Van Cleef & Arpels, have taken even more extensive measures by sending executives to inspect suppliers in India and enlisting external auditors to scrutinize the gemstone supply chain.
The proposed G7 ban introduces a new layer of complexity to already intricate supply chains, arriving at a time when diamond demand faces significant challenges.
Within the industry, ongoing discussions center on the verification of a diamond’s country of origin, the most appropriate location for this verification, and which sizes of stones, whether rough or polished, should fall under the new rule.
«The technical complexity lies in the broad and intricate interconnections of the supply chain,» explains diamond analyst Paul Zimnisky. «The diamond trade spans many countries, each with its unique cultures, religions, and levels of economic development.»
The U.S., a pivotal player that accounts for 55% of global demand, has already experienced declining demand for diamond jewelry due to factors like high interest rates, a sluggish post-pandemic recovery in China, and the emergence of competition from lab-grown diamonds.
India, renowned for cutting and polishing approximately 90% of the world’s rough diamonds, recently made an unprecedented request. They asked global miners to temporarily halt rough gem sales for two months to manage mounting stocks, causing stockpiles at diamond mining companies to surge.
At some point, these accumulated stocks will need to reenter the market, notes Richard Chetwode, a diamond industry consultant.
De Beers, a global industry leader in rough diamond production by value, anticipates that global diamond jewelry demand will surpass pre-pandemic levels in 2023. Nonetheless, it acknowledges the formidable economic challenges. The company observes, «Elevated inflation and higher interest rates continue to impact consumer confidence and discretionary spending in major diamond-consuming countries, including the U.S. and Europe.»
Richard Chetwode further highlights that «Retail in China has been significantly impacted, and U.S. retailers are already well-stocked ahead of the Christmas season.» As a result, he underscores, «There is currently a scarcity of buyers» for rough diamonds.